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Blyk shows the industry a new way

Blyk is typically described in press reports as ‘an advertising-funded MVNO’, but after spending some time looking at the company’s model and talking to the management, I’m inclined to think of it as a new type of mobile business.

Blyk is actually user-generated media company, but with some important differences. Unlike most ‘user-generated’ content ventures, it does not rely on users going out of their way to compose their own web pages or post photographs. Nor does it seek to place advertisements within the ‘content’ itself. Instead, Blyk’s ‘media’ is the free person-to-person communications it offers its subscribers.

Traditional media companies, like magazines and television studios, must employ staff to produce a constant stream of compelling content onto which they can tack their advertising inventory. User-generated services face their own set of challenges, particularly the need to gain scale with breakneck speed, thereby conquering the ’empty rooms’ problem. Blyk’s offering, however, enables the company to sidestep the scale issues of the user-generated model and avoid the production costs of traditional media. All they need is for people to remain interested in the idea of making calls and sending texts.

So how does that differ from a traditional network operator? Well, Blyk turns the model on its head by giving away the products most operators sell – voice and text – for free. In doing so, network capacity becomes a vehicle for advertising inventory.

The proposition is simple. Blyk offers 217 free text messages and 43 free voice minutes per month to its subscribers. In return, they must opt-in to receive up to 6 advertising messages per day, complete a profiling survey and be between the ages of 16 and 24 when they sign-up. According to the company’s own research of usage habits, this means the service will equate to a completely free mobile subscription for about 60% of the UK’s 16 to 24 year olds (additional top-ups can be purchased by the users if they exceed these limits).

Since launching in the UK in September 2007, Blyk has signed up about 30,000 customers and continues to accumulate subscribers at a rate of about 3000 per week. The customer acquisition strategy is interesting: it is based on an invitation-only principle, with Blyk sending street teams to talk directly to young customers, working with creative brands to target particular groups and rewarding word-of-mouth referrals. Blyk’s management, many of whom come from a media background, are passionate about maintaining the quality of this ‘audience’ for their advertisers.

They are targeting 100,000 UK customers by the end of 2008 and plan to launch in The Netherlands in the second half of this year.

Significantly, the founding members of the Blyk team come from both telecoms and media backgrounds and the company goes to great lengths to stress that it sees itself as a hybrid product of both these worlds. The CEO, Pekka Ala-Pietila, previously served as President of Nokia Mobile Phones, and fellow co-founder Antti Ohrling comes from the Contra Advertising agency.

If Blyk continues to hit its targets, it will have succeeded in establishing a new business model. Its revenue stream and customer relationships will be similar to that of a media company, but the costs and supplier relationships will be firmly fixed in the mobile industry. Put simply, Blyk is buying cheap capacity from incumbent network operators and using it build a business that will be geared and rated by the investment community as a media enterprise. Welcome to the next generation!

Of course, much depends on the willingness of Blyk’s subscribers to accept and respond to the advertisements. The evidence thus far is promising: in the 4 months since the company launched to the public, they’ve run about 500 advertising campaigns on behalf of 55 clients, with an average response rate of 29%. That’s an incredibly high percentage. Direct mail, web and email advertising rates rarely exceed 1%.

Much of the success can be attributed to Blyk’s approach to the mobile advertising experience. They use a medium with which the users are already very familiar – messaging – thereby avoiding much of the confusion and pricing uncertaintity around clicking through to mobile web-sites. The advertisements are sent as a text or picture message, and are designed to be two-way conversations. Users are invited to respond with a simple reply, e.g. Would you like to receive more information about our discounts on summer holidays? ^Y/N.

Interestingly, Blyk has found a large number of users respond with a much more detailed response than required. For instance, an anti-bullying campaign run on behalf of a government agency generated a lot of conversations with people wanting advice on problems they were facing at school.

Blyk’s advanced profiling technology allows advertisers to target their messages to very specific user groups. In its most basic form this might mean sending one type of messages to men and another to women, but it can also extend to sophisticated, multi-layered campaigns where the advertisements are refined for each user depending on how they respond to particular questions.

The average audience buy is about 60% across the 500 campaigns Blyk has run thus far.

The company is very transparent about its pricing, charging GBP 0.07 for every text message advert sent and GBP 0.22 for each MMS.

Management is understandbly hesitant to release actual revenue figures, but using the numbers released by their executives, we have been able to do some of our own revenue calculations. Assuming Blyk sends its customers 6 messages per day, the average advertiser purchases 60% of Blyk’s audience and the split between SMS and MMS messages is 70/30 in favour of SMS, we calculate Blyk is currently generating monthly ARPU of GBP 12.59.

If you look around at the wholesale rates available to MVNOs or even the kind of inclusive minutes and text bundles available from the major UK operators, it’s obvious that Blyk can achieve quite a healthy margin on this kind of ARPU. The margins look even better when you consider that Blyk does not have to recoup any handset subsidy.

There is strong potential upside too. If Blyk raises inventory usage to 75% and sees as a 50/50 split between SMS and MMS advertisements, monthly ARPU would hit GBP 19.85. The company also generates revenue from top-ups and the termination fees it receives from other operators connecting calls on to its network.

Goldman Sachs and IFIC have just joined the company’s original backers Sofinnova as investors in the venture.

We feel there is additional scope for Blyk to enhance its revenue streams in the future. Crucially, it has established a strong user experience from the outset. The proposition is clear – users know they will be receiving advertisements and, indeed, seem to value them as useful tips and advance information tailored for their preferences rather than intrusive interruptions.

On this basis, Blyk should be able to charge a premium for really detailed targeting. It could also introduce technology which allows users to buy goods and services directly from their mobile handset and share revenues with the advertisers. We envisage a scenario similar to Amazon’s ‘One Click’ purchasing, where a user would receive a mobile advertisement on their Blyk handset and be able to buy the product, bill it to their Blyk account and have it delivered to their house with a single keypress.

Antti Ohrling, co-founder of Blyk, was a keynote speaker at our previous MEX conference in May 2007.

Author

Marek Pawlowski is the founder of MEX. Since 1995, he has focused the MEX business on helping digital industries to develop better, more profitable products through improved understanding of user behaviour with mobile devices and wireless networks. MEX is best known for its events, research and consulting, which balance commercial, technical and user insights to define the future of mobile user experience.

I have just published the whitepaper “Reengineering Blyk’s Business Model”. My assumptions are more general leaving out the SMS/MMS split.

My summary is that Blyk can only reach profitability with high CPM, high sales ratio of the ad inventory and a rather high Premium ARPU (paid by users). The Ad ACPU (Average Cost Per User) is fix assuming that all users consume 100% of the free communciation allowance. So it would be good for Blyk to have a wholesale margin (retail minus) of 40% or more.

I also believe that Blyk should invite users of all ages, offer a flexible Ad ARPU and develop a mobile data strategy. Send me an email to jan@mobileeconomy.de to request the free PDF version of my whitepaper.

Regarding Blyk’s identity of being a media company, I think that Blyk calls itself a media company now as they offer ad inventory that advertisers can buy. A media company usually is partly or mainly ad-financed.

I don’t think that the p2p calls and SMS are the media as they are private and not public conversations. If yes all telecom carriers and email carriers would be media companies as they enable people to do p2p communication.